If the Fed wants to decrease the federal funds rate,it can ________.
A) increase the quantity of required reserves
B) decrease the quantity of required reserves
C) increase the quantity of excess reserves
D) decrease the quantity of excess reserves

Question

Quizplus · Accepted Answer

By decreasing the quantity of required reserves, banks will have more excess reserves, which they can lend out to each other at a lower interest rate, leading to a decrease in the federal funds rate. Increasing the quantity of required reserves would have the opposite effect. Increasing or decreasing the quantity of excess reserves would have no direct effect on the federal funds rate.

If the Fed Wants to Decrease the Federal Funds Rate,it